Weekly Newsletter: April 20, 2026
“It’s déjà vu all over again”. The beginning of baseball season always elicits at least one Yogi Berraism. After a miserable March that saw stocks fall nearly 10%, investors were reminded of another self-inflicted market sell-off just a year ago as tariffs were announced. The war with Iran surprised investors, who sold first and asked questions later. Last year’s decline came as worries about a slowing economy, higher inflation, and higher interest rates pushed stocks lower. Same song this year, just a different verse. Those worries abated in April as stocks jumped nearly 10%, with the SP500 declining only one day during April, and the tech indices have yet to see red this month. Not the “TACO” trade of a year ago, but a cease-fire and ongoing negotiations give investors hope that the war ends soon and oil once again flows through the straits. Higher energy prices have shown up in the inflation data, from consumer prices two weeks ago to producer prices last week. Outside of energy, inflation remains higher than the Fed would like, but not yet soaring as feared. Earnings season has also begun as the banking sector led off with good reports. The clean-up hitters, the highest weighted stocks in the SP500, report in two weeks. This week, the consumer is at the plate as retail sales and sentiment readings are due.
The producer price index release last week indicated the outsized impact of higher energy prices on the overall increase, accounting for most of the increase in final demand. Inside the numbers, core, which excludes food and energy, was below expectations. The service sector, which was a source of inflation earlier in the year, came in flat. One month of inflation data is not likely to capture the long-term impact of higher energy prices. They will begin to flow through transportation (trucking goods to market) and chemical companies (oil is a key ingredient in the chemical industry). The shutdown of the Straits of Hormuz has also impacted plenty of other industrial chemicals and gases that may begin showing up over the next few months. Earnings for the first quarter are not likely to be significantly impacted. They will be analyzed carefully for signs of slower growth during the rest of the year. For now, earnings are expected to grow in the mid-teens for 2026, on top of very good earnings growth last year. If those expectations get dashed, it could spell some rougher markets into the fall.
Bonds, like stocks, have rallied so far this month, just not to the same extent. High-yield bonds, the bond market’s surrogate for equities, have also jumped. The spread between high-yield bond rates and treasury rates is now back to near multi-year lows. Just when investors believed rate cuts were completely off the table, rumblings of rate cuts later this year have begun to be heard. In other words, investors have moved on, with nothing to see regarding Iran. The key to any rate cuts would be on the back of a poor job market or potentially a big pullback from consumer spending. Right now, the employment data looks just fine, and this week’s data on the consumer should help fill in a few blanks.
The playbook from last year was dusted off in April, with technology stocks leading the charge higher. While there was participation from the rest of the market, it pales in comparison. A 5-6% gain in April from the value sector of the market is nothing to sneeze at, but it is nearly half as good as the nearly 12% gain from technology. To be fair, technology stocks have been struggling for the past six months as euphoria over AI has given way to fears that AI would “eat” and put out of business many technology companies that were thought to benefit from AI. Some of those concerns remain, but many of them may never come to pass. The past six months’ decline in tech set the stage for this “buy everything” rally. If last year’s playbook is the one to follow, stocks could continue to rise over the rest of the year. Mid-term election years tend to be volatile (check!) as the first six to eight months move sideways in an interesting fashion. Post-election, the markets tend to rally into year-end. The geopolitical news will continue to dominate the news, and short-term investor psychology, earnings, and economic data will drive the markets over the long-term. Based on the recent data, the markets could rise further.
The health of the consumer will be in focus this week as retail sales and sentiment are released. Overall spending compared to inflation should provide a better picture of consumer confidence.
The opinions expressed in the Investment Newsletter are those of the author and are based upon information that is believed to be accurate and reliable but are opinions and do not constitute a guarantee of present or future financial market conditions.